Wall Street: How good of an approximation it makes?
... for market-based capitalism?
Hence, how sound is it to rely on Wall Street to sort out most society decision-making needs--from pensions to child-care, from environment to efficient allocation of resources, from war to peace?
Clarification added August 21, 2007:
Excellent answers, so far. They spell out the main directions round the argument, which I am going to restate as follows:
The Great Depression also resulted in a series of regulations and institutions that have been held responsible for many an ensuing development--ranging from the WWII to a progressive and modern society/state. After the Cold War, especially during Clinton's/Rubin's time, many of the post-Depression era regulations had come undone. The new idea in town has been "self regulation" of the private actors. In the light of the several bailouts, critics of "self regulation" say that in fact we only socialized loss and privatized gain. In the light of the ever renewed debate, triggered by the sub-prime events, loss of pension and health-care benefits through bankruptcy, and the '08 elections' messages, an evaluation of all previous assumptions and statements is as timely as ever. So, what do you think, is self-regulation the way to go, assuming that market capitalism is here to stay? Needless to say, feel free to elaborate as necessary.
Good Answers (3)
Maurizio P.
Director at S&I Savings and Investments Ltd.
Best Answers in: Equity Markets (17), Hedge Funds (15), Government Policy (2), Derivatives Markets (2), Futures Markets (2), Job Search (1), Risk Management (1), Personnel Policies (1), Business Development (1), Corporate Governance (1), Commodity Markets (1), Option Markets (1), Distribution (1), Career Management (1)
The Market is Always Right is a mantra that does not take into account The Law of Unintended Consequences....better known as Murphy's Law.
We had a big example in 1929 that Mr. Market could just react in a way that would precipitate situations into extremes, and it took a whole lot of Gov Regulations, the establishment of the Fed and and more than 9 years and WWII to get back on track.
Since Ronanld Reagan times, Capitalism decided that all these constraints were hampering developmemt, and broke a lot more free of Gov control, with the result of destroying that middle class that FDR painstakingly created, and concentrate more and more money in a handful of very rich ones with the Markets mantra and the strange concept that rich shlould pay less taxes, and poors should take up a lot of debt for living...
Now we are facing a crisis, and Mr. market screaming murder and clamoring for the Fed to come to rescue.
And, at least, in 1929 we had FDR...GW Bush does not look, to me, exactly that same calibre of statesman...and I don't have a clue on who the People of the USA will call to guide them in the next elections.
But one thing is clear...Capitalism is the most efficient way to create wealth, but somewhat, some power in the redistribution and reallocation should be given back to the Govts...if only we could get real people elected with a spirit of public service and not professional crooks in charge.
Don't worry, no one is challenging your right to buy your Porsche...but the efficiency of owning 4 Porsches, 3 fridges and and 4 giant plasma screens compared with having to do with less than 2$ a day...that IS debatable, and accepting a debate and a possible settlement through a regulating stakeholder is less expensive and destructive than a war..
Clarification added August 21, 2007:
Shawn, please, read well, in not one single point of my modest proposal you will find a nostalgic accent for Communism. Believe me, I have no regret for that failed system.
I realize how hard might have been in Poland, and how hard still can be there, and that always bring this kind of reaction, from people who have actually seen the damages of that system, which I can understand.
But you yourself say that a well regulated market is the best system....believe me, today is not so well regulated.
The greatest regulator so far was the tax system, and this regulation mechanism has been disrupted from the times of the supply side and the Laffer curve.
From then on it has become theoretically even justified to detax the rich, and keep the same level of taxes on the poor, then inflate the price of assets, and increase the gap between have and have nots, making almost impossible for the have nots to have without a ridicolous debt burden fueled by cheap money.
The school system, I'm sorry to say, is no more conducive to excellence of the brightest...but to excellence of the moneyed, the 2 things differ..
In fact, to find a mathematic in the U.S., you will often encounter Indian, Pakistani or Chinese names...the WASPs go to Harvard, to become Lawyers or Investment Bankers.
The immigrants go to M.I.T. and write Quant Physics papers, because numbers mean sweating on books and accepting challenges...what kind of challenges there are in just being groomed to fill the bespoke made shoes of your father??
There are, as always in any human activities, exceptions, but your hailng of the Market as efficient and of greed as a big motivator are no more in line with the times. Resources are a finite quantity, greed will, in the end, be eaten by itself, if Americans do not start to think with their brain, and throw resources in building efficient cars, just as an example, they will end up using horses to draw their stack SUVs...and a myriad of other examples.
My example of 4 Porsches was just inducing reflexive thinking....
How many cars can you drive at a time ? one
How many homes can you live into a ta time ? one
Beyond 300 sqmts of home you need a golfcart to move from one room to another...unless you pach a family of 11 elements then...
You really NEED (mind you check the meaning of need) 4 plasmas to be watching a different channel in every possible room ? Or you NEED to feel estranged by wife and sons so they can see their TV without bothering you on the Sport channel ?
I am not obviously talking to You Shawn, I don't know You in the least and you may be immune to all these examples.
I am just mourning the death of a conscience and a sense of decency that the World has lost.
There is no common sense in distributing resources that are finite and scarce in a world driven only by greed, we are all interlocked Shawn, and what is happening today in the markets is the sweet and unintended vengeance of Joe Sixpack when you drive him in a corner : pay by yourself that unbearable mortgage you bestowed on me driven by the greed to package it and resell it to buy the 4th Porsche.
This is just the beginning...if we don't get back common sense, fairness, a sense of interdependence, the idea that we are all fellows in a spaceship that is running out of many necessary things...greed will be paid back in kind.
I had hoped a better outcome for mankind. I had hoped we would at least talk....as yo say, a well regulated market.
The keywords are well regulated.
Mykel de W.
Consultant
Best Answers in: Using LinkedIn (23), Wireless (5), Computers and Software (4), Customer Service (1), Regulation and Compliance (1), Education and Schools (1), Certification and Licenses (1), Job Search (1), Treaties, Agreements and Organizations (1), Derivatives Markets (1), Option Markets (1), Manufacturing (1), Distribution (1), Professional Networking (1)
The price is right, as in the market is always right. However markets are deemed efficient allocaters of resources, theories on market effectiveness show a somewhat different picture. EU has a somewhat more moderate use for the extreme efficiency of the market.
Shawn C.
Senior Financial Analyst at Blackhawk Network
Best Answers in: Equity Markets (2), Personal Investing (2), Using LinkedIn (2), Job Search (1), Venture Capital and Private Equity (1), Government Policy (1), Personnel Policies (1), Employment and Labor Law (1), Change Management (1), Organizational Development (1), Planning (1), Commodity Markets (1), Currency Markets (1), Project Management (1), Career Management (1), Ethics (1), Small Business (1), E-Commerce (1), Web Development (1)
There are ups and downs, but you just look to what happened in any highly controlled society ie. government-controlled vs. market controlled. When I lived in Poland during the last year of communism, there were no lighters on the market at all, despite demand. Now, you may think, so what's the hassle for a few smokers, but thats not it. There were several items missing from the economy or supplied through dollar stores only. The point is an open well-regulated market is the best deciding factor economically. There will always be a boom/bust cycle, but it is a small price to pay for the increased variety, huge quantity and economic freedom, which usually drives a well-satisfied public. If you have any doubt to the practicality of communism today, look to North Korea with millions starving for lack of market decisions. If you want another system to compare, look to Mugabe or Chavez in Venezuela. The Venezuela market as a WHOLE is down 22% this year, BEFORE the recent market crash. The market is pulling out all the stops there due to extreme mismanagement through centralization. The point is the market does over/under estimate supply/demand, but corrects itself very quickly to logic in the long run.
Links:
Clarification added August 20, 2007:
Maurizio brings up a good point about people making $2/day from their earnings while others have 4 plasmas, etc. Not to be harsh, but generally the people that have 4 plasmas went to school several years, worked extremely hard and were astute business people. There are poor people in the US, but most did not apply themselves in schools, do not work hard to get ahead (they may work many hours, but did not apply to learning) and make very poor business decisions. The point is if you make the government the great equalizer, everyone ends up with less. Human instinct is greed, to deny this is just refuting reality. Yes, we need to make an attempt to educate people and create opportunity for people to rise from all stations, but we should not create a welfare state driven by government only. When I lived in Poland, my allowance of $5/week was the same as a middle class family income due to the "logic" of wage equalization for the educated classes. I think it is apparent the result economically--a region-wide collapse of the whole East Bloc and Russia or say 30% of the world approximately.
Clarification added August 20, 2007:
If you check out FDR's record, then you will see that the market did not recover until WWII or say his whole administration. Many of his centralized government policies back-fired. I think he made a great attempt to repair the damage, but the free market would likely have recovered faster without gov't intervention.
More Answers (1)
Joseph W.
Quantitative Finance Research / Astrophysics
Best Answers in: Derivatives Markets (4), Education and Schools (3), Financial Regulation (3), International Law (3), Bond Markets (3), Currency Markets (3), Equity Markets (3), Job Search (2), Staffing and Recruiting (2), Internationalization and Localization (2), Corporate Law (2), Property Law (2), Commodity Markets (2), Nonprofit Management (2), Social Enterpreneurship (2), Personal Debt Management (2), Using LinkedIn (2), Certification and Licenses (1), Resume Writing (1), Corporate Debt (1), Foreign Investment (1), IPO (1), Economics (1), Offshoring and Outsourcing (1), Treaties, Agreements and Organizations (1), Customs, Tariffs and Taxes (1), Criminal Law (1), Intellectual Property (1), Employment and Labor Law (1), Business Development (1), Business Analytics (1), Corporate Governance (1), Futures Markets (1), Personal Investing (1), Career Management (1), Incorporation (1), Starting Up (1), Computers and Software (1), Software Development (1)
I think that people who invoke Wall Street in the context of laissez-faire capitalism often don't understand much about how Wall Street works. In fact, the American financial industry is one of the more heavily regulated industries in the world, and most people in the industry think that this a good thing.
The attitude of most people on Wall Street toward government regulators is like the attitude of most people toward the police. You *have* to have some self-regulation since you can't have a cop on every street corner, but part of the reason people on Wall Street think regulation is a good thing is that you can't run an honest bank, if you have to compete with dishonest ones. Also, on Wall Street, you can follow the law, and obey the regulators, and still make a huge amount of money.
One should point out that New York is one of the strongest blue states, and Wall Street tends to contribute more to Democrats than Republicans. New York also has one of the highest tax rates in the country.
